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In Conversation – Mr Bond and Wasps Chief Executive David Armstrong

In this exclusive interview
Mr Bond tries Wasps’ Chief Exec David Armstrong with some searching questions –
and appears to have been converted.

Following its heyday in the early noughties when it won the English Premiership five times and was crowned European champions twice, erstwhile ‘London’ Wasps Rugby Club struggled a little on and off the pitch and even flirted with insolvency in 2012.

However, the club has come back strongly and now, following its
acquisition of the Ricoh Arena in Coventry, has ambitious plans that could see
it become one of the world’s most affluent rugby clubs.

The Aviva Premiership side today announced the launch of a seven year
Sterling retail bond paying 6.5% to be listed on the LSE’s Order Book for
Retail Bonds and available with a minimum investment of £2,000.

With a target to raise £35 million it is believed that the bond will be
used to repay some outstanding debt and then set about propelling Wasps to the
pinnacle of rugby sporting achievement.

When it bought the 32,000 capacity stadium it
also acquired a significant conference, exhibition, events and hospitality
business which Wasps’ Group Chief Executive David Armstrong, when quoted on BBC
Radio Five Live, described as ‘creating a new financial model in rugby’

He added ‘We were previously the second-lowest
revenue-generating club in Premiership rugby. We are now the second highest in
Europe’. ’In terms of size of revenue, we will overtake Toulouse in the next
few months. We are in a very strong position financially.”

Mr Bond was lucky enough to have the
opportunity to speak Mr Armstrong to find out a little more about plans at this
ambitions club.

What are your objectives in launching a Retail Bond?

David Armstrong (DA)
‘This is predominantly a restructuring exercise following the acquisition of the Ricoh Arena (from Arena
Coventry Ltd). There was a certain amount of existing debt on both sides of the
business and we believed that market conditions and demand from retail
investors were right for a refinancing exercise.’

Is Wasps a rugby club with business interests or an events and hospitality business with a rugby team?

DA ‘The acquisition of the Ricoh and the relocation of the club to Coventry
has been transformational for the business but we are very much a rugby club
with strong business interests and instincts’.

While most of their Aviva Premiership rivals rely on broadcast rights for the bulk of
their income, Wasps are now able to profit from a 40,500 capacity concert
venue, casino, two restaurants and a hotel at the Ricoh.

DA ‘At Adams Park (Wasps’ previous home at High
Wycombe) our flexibility to develop the business was limited because of the
terms of our tenancy agreement which affected everything, up to and including
‘pourage’ on the beer that fuelled the faithful; as a result we were loss
making.’

‘The old model of either owning a purpose-built
rugby stadium, or even being a tenant in somebody else’s stadium, has now been
superseded by what we’ve done.’

Why
did you choose to issue a bond rather than seek other forms of finance?

DA
‘We believe that a retail bond is the best vehicle for us to leverage
Wasps’ strong brand awareness and with a minimum investment of £2,000 deliver
an investment opportunity to our supporters and sports fans in general as well
as other retail investors. We decided that the issue of a fully listed bond
(traded on the London Stock Exchange’s Order Book for Retail Bonds) was the
‘grown up’ approach and we wanted to do things properly’

The
bond is secured against Wasps Holdings and Arena Coventry Ltd.

Is
there any science behind the 6.5% coupon that is being offered?

DA
‘We wanted to offer something that was within
the middle of the range that has been offered by recent issuers in order to
deliver what we believe could be an attractive return to investors and reflect
market conditions’

What
are the core attributes of Wasps that could make it attractive to a potential
investor?

DA
‘Wasps’ ambition on the pitch is matched away from it. Key to its
strategy is the diverse income streams it generates – 65% of its revenue comes
from activities outside of rugby which we believe is really important in the
creation of a profitable and sustainable business. Ricoh is one of the largest conference and
exhibition businesses in the country – possible number five or six behind the
likes of the NEC and Excel – generating revenue 365 days a year and showing
excellent year on year growth.’

‘Wasps
is now master of its own destiny in so many ways – the ‘pouring rights’ issue
has gone away; the contract previously controlled by Carlsberg has been put out
to tender with three bidders vying for the business. This is a case of two plus
two equalling five’

Retail
bond issuance has been low, what do you think are the prospects for the sector?

DA
‘I have been involved with other types of
finance but this is my first experience of retail bonds; there appears to be
significant demand from investors and it seems to be the ideal product for us
reach a wider audience’

Do
you think that other sports businesses will follow Wasps’ lead and what would
be your advice to anyone considering it?

DA
‘I believe that delivering diversity of income
is key to the opportunity – the ability to generate revenue away from the
pitch. Business is business but the supporters are the DNA upon which any
sports club is founded; I believe that we can deliver on the business aspects
without diluting any of that passion and enthusiasm.’

DA
‘Things are going well, Wasps’ home crowds have tripled since the move
to Coventry to 18,569 and the sales of hospitality packages have increased
four-fold making the Ricoh the second highest seller of rugby hospitality
outside of Twickenham. With match day hospitality starting at just £80 that is
all about understanding the requirements of your fans’.

‘We
have already sold 31,000 tickets for what should be a spicy encounter with new
neighbours Leicester Tigers next week and a sell out crowd would be the highest
ever home gate for an Aviva Premiership match.

There
are concerns that the cost and complexity of providing documents in support of
retail bonds have endangered the sector – has the process been onerous?

DA ‘Not at all, the entire process has been relatively
painless both in terms of the time expended and the overall cost. We chose to
work with Investec because it has strong expertise in sport and has recently
delivered a finance package to Arsenal’s Emirates Stadium. The company has very
good personal relationships and excellent knowledge of the retail bond sector’

Notwithstanding the fact that
Wasps’ relative wealth will entitle it to a seat at the sport’s top table,
won’t the salary cap always restrict its ambitions in Europe?

Despite already being near the RFU’s salary cap
Wasps has pledged to bring in a ‘marquee’ player following its successful
refinancing. Given that big-spending French clubs have dominated European
competition of late (Toulon and Clermont Auvergne contest the European Champions
Cup final at Twickenham on 2nd May) Mr Bond was a little surprised by the Chief Exec’s support for the
cap.

DA
‘We
fully support the cap and believe the reason that the French national team is
currently so weak whilst its clubs flourish is as a direct result of clubs
bringing in players from around the world and neglecting to bring on its home
grown talent’

‘Will we be seeing Wasps players in action at
the World Cup later this year?’

DA
‘I certainly hope so. Wasps has played some great rugby this season –
currently sixth, we are well placed in the Premiership and played fantastically
well in Europe (losing in the quarter finals of the Champions Cup to Toulon).’

‘It
would be great to see young guys like Christian Wade, Joe Launchbury and Elliot Daly given a
chance and that try by Joe Simpson (against Exeter Chiefs) was something else.

Mr Bond was left with the impression that
David Armstrong is a man that has a passion for sport and business in equal
measure and that the company he is creating is a fusion of the best elements of
each.

Retail Bond Expert will report on the progress of the bond throughout
the offer period and would like to hear from you if you have any thoughts on
what could become a new source of
finance for sports businesses.